The first spreadsheet, VisiCalc, had helped launch the Apple II as one of the earliest personal computers in business use. With IBM's entry into the market, VisiCalc was slow to respond, and when they did, they launched what was essentially a straight port of their existing system in spite of the greatly expanded hardware capabilities. Lotus' solution was marketed as a three-in-one, integrated solution, which handled spreadsheet calculations, database functionality, and graphical charts. Thus the name "1-2-3", though how much database capability was debatable given Lotus' spare memory. 1-2-3 quickly overtook VisiCalc, as well as Multiplan and SuperCalc, two VisiCalc competitors.

1-2-3 was the spreadsheet standard throughout the 1980s and into the 1990s, part of a suite of three office automation products that included dBase and WordPerfect, to build a complete business platform. With the acceptance of Windows 3.0, the market for desktop software grew even more. None of the major spreadsheet developers had seriously considered the graphical user interface to supplement their DOS offerings, and so they responded slowly to Microsoft's own graphical based products, Excel and Word. Lotus was passed by Microsoft in the early 1990s and never recovered. IBM purchased Lotus and continued to sell Lotus offerings, only officially ending sales in 2013.[2]

VisiCalc was launched in 1979 on the Apple II and immediately became a best-seller. Compared to earlier programs, VisiCalc allowed one to easily construct free-form calculation systems for practically any purpose, the limitations being primarily memory and speed related. The application was so compelling that there were numerous stories of people buying Apple II's to run the program. VisiCalc's runaway success on the Apple led to direct bug compatible ports to other platforms, including the Atari 8-bit family, Commodore PET and many others. This included the IBM PC when it launched in 1981, where it quickly became another best-seller, with an estimated 300,000 sales in the first six months on the market.

There were well known problems with VisiCalc, and several competitors appeared to address some of these issues. One early example was 1980's SuperCalc, which solved the problem of circular references, while a slightly later example was MicrosoftMultiplan from 1981, which offered larger sheets and other improvements. In spite of these, and others, VisiCalc continued to outsell them all.[3]

The Lotus Development Corporation was founded by Mitchell Kapor, a friend of the developers of VisiCalc. 1-2-3 was originally written by Jonathan Sachs, who had written two spreadsheet programs previously while working at Concentric Data Systems, Inc.[4][5] To aid its growth, in the UK, and possibly elsewhere, Lotus 1-2-3 was the very first computer software to use television consumer advertising.[6]

1-2-3 was released on January 26, 1983, and immediately overtook Visicalc in sales. Unlike Microsoft Multiplan, it stayed very close to the model of VisiCalc, including the "A1" letter and number cell notation, and slash-menu structure. It was cleanly programmed and relatively bug-free, gained speed from being written completely in x86 assembly language (this remained the case for all DOS versions until 3.0, when Lotus switched to C[7]) and wrote directly to video memory rather than use the slow DOS and/or BIOS text output functions.[citation needed]

The reliance on the specific hardware of the IBM PC led to 1-2-3 being utilized as one of the two stress test applications, with Microsoft Flight Simulator, for true 100% compatibility when PC clones started to appear in the early 1980s.[8][9][10][11][12][13] 1-2-3 required two disk drives and at least 192K of memory, which made it incompatible with the IBM PCjr; Lotus produced a version for the PCjr that was on two cartridges but otherwise identical.[14]

By early 1984 the software was a killer app for the IBM PC and compatibles, while hurting sales of computers that could not run it. "They're looking for 1-2-3. Boy, are they looking for 1-2-3!" InfoWorld wrote. Noting that computer purchasers did not want PC compatibility as much as compatibility with certain PC software, the magazine suggested "let's tell it like it is. Let's not say 'PC compatible,' or even 'MS-DOS compatible.' Instead, let's say '1-2-3 compatible.'"[15] An Apple II software company promised that its spreadsheet had "the power of 1-2-3".[16] Because spreadsheets use large amounts of memory, 1‐2‐3 helped popularize greater RAM capacities in PCs, and especially the advent of expanded memory, which allowed greater than 640k to be accessed.

Lotus 1-2-3 inspired imitators, the first of which was Mosaic Software's "The Twin", written in the fall of 1985 largely in the C language, followed by VP-Planner, which was backed by Adam Osborne. These were able to not only read 1-2-3 files, but also execute many or most macro programs by incorporating the same command structure. Copyright law had first been understood to only cover the source code of a program. After the success of lawsuits which claimed that the very "look and feel" of a program were covered, Lotus sought to ban any program which had a compatible command and menu structure. Program commands had not been considered to be covered before, but the commands of 1-2-3 were embedded in the words of the menu displayed on the screen. 1-2-3 won its case against Mosaic Software. However when they sued Borland over its Quattro Pro spreadsheet in Lotus v. Borland, the courts ruled that it was not a copyright violation to merely have a compatible command menu or language. In 1995, the First Circuit found that command menus are an uncopyrightable "method of operation" under section 102(b) of the Copyright Act. The 1-2-3 menu structure (example, slash File Erase) was itself an advanced version of single letter menus introduced in VisiCalc.

Microsoft's early spreadsheet Multiplan eventually gave way to Excel, which debuted on the Macintosh in 1985. It arrived on PCs with the release of Windows 2.x in 1987, but as Windows was not yet popular, it posed no serious threat to Lotus' stranglehold on spreadsheet sales. However, Lotus suffered technical setbacks in this period. Version 3 of Lotus 1-2-3, fully rewritten from its original macro assembler into the more portable C language, was delayed by more than a year as the totally new 1-2-3 had to be made portable across platforms and fully compatible with existing macro sets and file formats. The inability to fit the larger code size of compiled C into lower-powered machines forced the company to split its spreadsheet offerings, with 1-2-3 release 3 only for higher-end machines, and a new version 2.2, based on the 2.01 assembler code base, available for PCs without extended memory. By the time these versions were released in 1989, Microsoft was well on its way to breaking through Lotus' market share.

During the early 1990s, Windows grew in popularity and along with it Excel, which gradually displaced Lotus from its leading position. A planned total revamp of 1-2-3 for Windows fell apart and all that the company could manage was a Windows adaptation of their existing spreadsheet with no changes except using a graphical interface. Additionally, several versions of 1-2-3 had different features and slightly different interfaces.

1-2-3's intended successor, Lotus Symphony, was Lotus' entry into the anticipated "integrated software" market. It intended to expand the rudimentary all-in-one 1-2-3 into a fully-fledged spreadsheet, graph, database and word processor for DOS, but none of the integrated packages ever really succeeded. 1-2-3 migrated to the Windows platform, as part of Lotus SmartSuite.

IBM's continued development and marketing of Lotus SmartSuite and OS/2 during the 1990s placed it in direct competition with Microsoft Office and Microsoft Windows, respectively. As a result, Microsoft "punished the IBM PC Company with higher prices, a late license for Windows 95, and the withholding of technical and marketing support."[17]
IBM wasn't granted OEM rights for Windows 95 until 15 minutes prior to the release of Windows 95, August 24, 1995. Because of this uncertainty, IBM machines were sold without Windows 95, while Compaq, HP, and other companies sold machines with Windows 95 from day one.[18]

On June 11, 2013, IBM announced it would withdraw the Lotus brand: IBM Lotus 123 Millennium Edition V9.x, IBM Lotus SmartSuite 9.x V9.8.0, and Organizer V6.1.0. IBM stated, "Customers will no longer be able to receive support for these offerings after September 30, 2014. No service extensions will be offered. There will be no replacement programs." [19]

The name "1-2-3" stemmed from the product's integration of three main capabilities. Along with being a spreadsheet, it also offered integral charting/graphing and rudimentary database operations.

Data features included sorting data in any defined rectangle, by order of information in one or two columns in the rectangular area. Justifying text in a range into paragraphs allowed it to be used as a primitive word processor.

It had keyboard-driven pop-up menus as well as one-key commands, making it fast to operate. It was also user-friendly, introducing an early instance of context-sensitive help accessed by the F1 key.

Macros in version one and add-ins (introduced in version 2.0) contributed much to 1-2-3's popularity, allowing dozens of outside vendors to sell macro packages and add-ins ranging from dedicated financial worksheets like F9 to full-fledged word processors. In the single-tasking MS-DOS, 1-2-3 was sometimes used as a complete office suite. All major graphics standards were supported; initially CGA and Hercules, and later EGA, AT&T, and VGA. Early versions used the filename extension "WKS".[20] In version 2.0, the extension changed first to "WK1",[21] then "WK2".[22] This later became "WK3" for version 3.0[23] and "WK4" for version 4.0.[24]

Version 2 introduced macros with syntax and commands similar in complexity to an advanced BASIC interpreter, as well as string variable expressions. Later versions supported multiple worksheets and were written in C. The charting/graphing routines were written in Forth by Jeremy Sagan (son of Carl Sagan) and the printing routines by Paul Funk (founder of Funk Software).[citation needed]

Release 5 added additional groupware capabilities, chart maps, and improved database access. This was the last 16-bit version for Windows 3.1x, and was available as part of SmartSuite 3.1, 4, and 4.5. Introduced in 1994.[35][36]

97 Edition was the first 32-bit version, requiring Windows 95 or Windows NT 4.0, and had a changed interface and support for LotusScript. Introduced in 1997.[25]

Millennium Edition 9.8 contained new functions, improved Y2K support, Internet support, and better Excel compatibility. This is the last version of 1-2-3 for any platform, and has received maintenance releases through Fixpack 2. Introduced in 2002.[25]

DeskMate — "Lotus Spreadsheet for DeskMate", which was not officially called "1-2-3", supported 1-2-3 2.x files, and used windows, on-screen symbols, pull-down menus, dialog boxes and other graphical tools similar to Microsoft Windows. However, it did not support add-ins, macros, or expanded memory. Introduced in 1989.[26]

Unix — A single version for Unix System V/386 was released. It was certified for SCO Xenix 2.3 and SCO Unix 3.2.0, but also expected to work on AT&T's plain System V and on ISC's 386/ix. Introduced in 1990.[37]

HP MS-DOS Pocket PCs — A joint collaboration between Hewlett Packard and Lotus, the HP 95LX and its successors (1991-1994) had ports of 1-2-3 embedded in ROM.

Apple Macintosh — Lotus' first truly WYSIWYG spreadsheet, taking full advantage of the Mac OS, had two releases: Release 1.0-introduced in 1991,[38] and Release 1.1-introduced in 1992.[39]

After previewing 1-2-3 on the IBM PC in 1982, BYTE called it "modestly revolutionary" for elegantly combining spreadsheet, database, and graphing functions. It praised the application's speed and ease of use, stating that with the built-in help screens and tutorial "1-2-3 is one of the few pieces of software that can literally be used by anybody. You can buy 1-2-3 and [an IBM PC] and be running the two together the same day".[40]PC Magazine in 1983 called 1-2-3 "a powerful and impressive program ... as a spreadsheet, it's excellent", and attributed its very fast performance to being written in assembly language.[41]